SpiceJet sees turnaround if load factors continue

Airline's shares drop 16.2% on rising concerns over its financial stability; co says it is in the process of transforming itself completely under new management

Despite increase in market share in June, challenges do not seem to end for budget carrier SpiceJet with fresh concerns rising over its financial stability.

Shares of SpiceJet fell to Rs 14 on BSE on Wednesday from its previous close of Rs 16.70, a drop of 16.2%.

The budget airline, which is currently in talks with potential investors, has been offering heavy discounts during the year. The airline managed to improve its market share to 19% in June, racing ahead of Air India, to claim the number three spot.

However, increasing losses and recent reports on the airline faltering over distributing TDS (tax deducted at source) certificates and Form 16 to its employees, and an engineering audit ordered by the aviation regulator has raised concerns over its financial stability.

Though there are parallels being drawn with grounded Kingfisher Airlines (KFA), experts and employees told dna that the situation is not as bad as KFA, which defaulted on payments to its employees, banks, airports and leasing companies.

"The company told us that the TDS issue will be resolved very soon. Yes, there is a fear among employees. But it is still not as bad as what we have seen in KFA," said an employee, who had also worked in KFA.

"SpiceJet's load factor was among the best last month. The management has told us that the company may see a turnaround if we continue to get such load factors," he said.

However, increasing concerns over financial crisis are leading to higher level of attrition, as employees do not want to experience another KFA, said people close to the airline.

In a statement issued on Wednesday, the airline said it is in the process of transforming itself completely under the new management, after one of the most challenging years in its history. "It is focused on running an on-time, innovative, and operationally top class airline that offers customers the best fares and onboard experience, and delivers service with warmth and care. Its performance trends over the last several months, as exemplified by the June passenger traffic data and customer feedback, are very encouraging," the statement said.

"We intend to see this transformation through to completion, and we have a plan to address the remaining legacy issues and challenges in the coming weeks and months," it said.

Despite being in talks with potential investor/investors over months, the airline has not been able to close the deal so far. An aviation expert said, "The market condition is bad and is unlikely to revive. SpiceJet is in a more difficult situation compared to other carriers. It is not making profits despite increase in market share. Hence, the airline might be finding it difficult to get the right valuation."

As per the estimates, airline may incur a loss of Rs 90-110 crore in June quarter. SpiceJet posted a record loss of Rs 1,003 crore last fiscl, which was five times posted in the previous year. Its total debt stands at around Rs 1,736 crore as on March 2014.